Credit Card Surcharges

Aneace Haddad, whose blog I read regularly and enjoy immensely, has had a recent series of post on credit card surcharges:

• Credit card surcharges on the rise in Singapore
• Credit card surcharges in London

In essence, there are signs posted at the register that dictate between a 2 to 3 percent increase in ticket price when paying with credit.  This is designed to offset the increased acceptance cost of a credit tender vs. cash (associated with the interchange fee each merchant is paying).

So why isn’t this practice more prevalent in the US?  And why won’t it be more prevalent in the immediate future?

The answer is referred to as "Accept All Cards".  This is the colloquial term for a series of provisions in the merchant agreement that is signed when being approved to accept credit cards.  Rather than enumerating the specifics for each card association, I will just provide a summary of the information that Visa provides to each merchant.  (Although the specifics differ slightly for each card, they are materially the same).

Please note, this is the summary information available publicly at the Visa site.  It is not the specific legal verbiage used in a merchant agreement. . .if you have questions about specific situations, contact your acquirer.

Information about Visa’s operation regulations for merchants are available here.

The specific elements addressing card acceptance policies break down into the following elements:

• Dollar Minimums and Maximums
• No Surcharging
• Convenience Fees

Dollar Minimums and Maximums:  Visa mandates that the merchant must always accept cards  all cards regardless of the purchase amount.  Frequently, at least in the US market, you will see a minimum dollar value (i.e. "No credit cards for purchases under 5 dollars").  This is not allowed by the merchant agreement.. . .period, full stop. I wouldn’t, necessarily, encourage providing this information to the merchant as it is not usually happily accepted.  Perhaps if you are purchasing a car, but it is not worth the price of coffee to cause frustration.  With that said, if you want to be a payments regulation crusader feel free, you will be correct.

No Surcharging: Relatively straightforward, eh?  No surcharging.  Interestingly, a merchant is allowed to provide a discount for cash transactions as longs as it is clearly a "discount" for cash.  Although this is supported, I haven’t seen merchants provide this option.  It would be a much better approach to "incent" a customer to provide cash than to "penalize" for providing a card.  The concept of a surcharge requires mental gymnastics. . .but a simple rebate or discount does not.  (Yes, I understand that this is difficult because interchange is a percentage of transaction amount rather than flat fee. . .perhaps a sliding discount scale could be supported).

Convenience Fees:  This one is somewhat more difficult to describe.  As such, I’m going to quote a sample scenario from the pdf that Visa provides entitled Rules for Visa Merchants.

The merchant provides utility services to its customers, and the customary way to pay is by mail or in person at the merchant’s location. For the convenience of its customers, the merchant also offers a website for payments. In this example, the merchant may apply a convenience fee to payments made via the website.
For further information on Convenience Fees, please contact your merchant bank.

Basically, this is a way to attach a fee for accepting card payments in a method that is substantively outside the merchants normal method of accepting payments.

Although I am not familiar with merchants, particularly the SMB merchants, having to remove their paper "5 dollar minimum" sign I wouldn’t be surprised if this happens.  Hopefully, however, the information above provides sufficient background on why the surcharges Aneace references are not often seen in the US.

What’s your perspective? Agree? Disagree? Anything to add? Critiques?
The comment form is below. . .

December 5, 2007

Posted in Discussion.